Tony Hsieh: Why I Sold Zappos
Tony Hsieh built his online shoe retailer into an e-commerce powerhouse. But with credit tightening and investors eyeing the exits, Hsieh was forced to ask: Was selling Zappos really the only way to save it?
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By early 2009, we were at a stalemate. Because of a complicated legal structure, I effectively controlled the majority of the common shares, so that the board couldn't force a sale of the company. But on the five-person board, only two of us -- Alfred Lin, our CFO and COO, and myself -- were completely committed to Zappos's culture. This made it likely that if the economy didn't improve, the board would fire me and hire a new CEO who was concerned only with maximizing profits. The threat was never made overtly, but I could tell that was the direction things were going.
It was a stressful time for me and Alfred. But we'd gotten through much tougher times before, and this seemed like just another challenge we needed to figure out. We began brainstorming ways that we could get out from under the board. We certainly didn't want to sell the company and move on to something else. To us, Zappos wasn't just a job -- it was a calling. So we came up with a plan: We would buy out our board of directors.
We figured to do so would cost about $200 million. As we were talking to potential investors, Amazon approached Alfred about buying Zappos outright. Although that still didn't seem like the best option to me, Alfred sensed that Amazon would be more open than last time to the idea of letting Zappos continue to operate as an independent entity. And we felt that the price Amazon was talking about was too large for us to ignore without potentially violating our fiduciary duty to our shareholders.
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The acquisition closed on November 1, at a valuation of $1.2 billion (based on Amazon's stock price on the day of closing). Our investors at Sequoia made $248 million. Our board was replaced by a management committee that includes me, Jeff, two Amazon executives, and two Zappos executives. As CEO, I report to the committee every quarter, and Zappos is responsible for hitting revenue and profitability numbers. But unlike our former board of directors, our new management committee seems to understand the importance of our culture -- the "social experiments" -- to our long-term success. In fact, one Amazon distribution center recently began experimenting with its own version of Zappos's policy of paying new employees $2,000 to quit if they're unhappy with their jobs.